A bright Ideagen

Strong demand for these services along with acquisitions powered revenue growth of 24 per cent last year. And as well as growing its top line, Ideagen is focused on growing the quality of its revenues, too. It's customer base is already 'sticky' – a highly attractive quality for a growth stock – with renewal rate for support and maintenance contracts coming in at a hearty 97 per cent last year. However, the company is also focusing on increasing recurring revenue, by shifting away from a traditional licence model with big upfront payments, towards a software as a service (SaaS) subscription model. Total recurring revenue constituted 57 per cent of the top line in 2017, up from 54 per cent.

While organic growth is strong, coming in at 10 per cent last year, the company is also focused on using acquisitions to make the most of the opportunities in its end markets. Last year Ideagen made four purchases that not only boosted sales, but also took it into new areas of compliance and new end markets. Broadening the range of services it offers should help long-term prospects as compliance is often dealt with by organisations on a piece-meal basis across divisions. The company's cloud base solutions aim to bring these functions together for clients, creating a coherent whole.

Ideagen is an experienced acquirer of other companies, which provides some reassurance about its ability to integrate the number of businesses it bought last year. What's more, this active period for dealmaking followed an acquisition hiatus in 2016 and management appears to have been judicious about selecting the latest additions, which included Covalent, bought to add a risk element to Ideagen’s Pentana audit management business, and PleaseTech, a supplier of document review software.

The PleaseTech acquisition was accompanied by an oversubscribed £10m fundraising, through the sale of new shares at 75p. While cash generation is robust, the rate of acquisition means there have been other such fundraising in Ideagen’s public life, with management keen to keep the balance sheet in a healthy state. The £4.2m year-end net cash position matched expected contingent payments for acquisitions over the next two years.